Mar 11, 2019 - 9:00am

Of Babies, Bathwater, and the WTO


Senior Vice President for International Policy

Tomorrow, March 12, U.S. Trade Representative Robert Lighthizer will testify before a Senate Finance Committee hearing entitled “Approaching 25: The Road Ahead for the World Trade Organization.” The hearing will be an opportunity to take stock of the WTO and its role as a global forum for trade negotiations and an adjudicator of trade disputes.

Despite a number of challenges, the U.S. business community has long regarded the World Trade Organization (WTO) as one of the most successful multilateral organizations. The global rules-based trading system it embodies has benefited the entire world – but no one more than the United States.

Everyday benefits

While the WTO was created in 1995, it built on the foundation of the 1947 General Agreement on Tariffs and Trade (GATT). Combined, the WTO and the GATT have revolutionized world trade. Eight successful multilateral negotiating rounds have helped increase world trade from $58 billion in 1948 to well above $20 trillion today. This 40-fold increase in real terms has brought a rising tide of commerce to nearly the entire world.

It isn’t just the tariff elimination brought about under the GATT and the WTO that benefits American companies and the workers they employ. The WTO guarantees that U.S. firms operating abroad will receive “national treatment” (i.e., the same rights and responsibilities granted local firms) and “most-favored nation (MFN) treatment” (i.e., treatment as good as that afforded firms from the most favorably treated country).

In addition, the arbitrary use of technical regulations or standards to block imports is all too common. The WTO provides rules to guard against this kind of protectionism in disguise. WTO rules also prohibits supposed “sanitary” measures that lack a clear basis in science and are protectionist in intent.

American firms rely on these rules – every day of the year – all around the globe.

If the U.S. Congress passed legislation withdrawing the United States from the WTO, the other 163 WTO Member States – representing 99% of the world economy – would be free to raise their tariffs against U.S. exports as high as they liked – and Washington would have no legal recourse. U.S. firms would also lose the protection of the WTO’s rules against discriminatory treatment.

It’s become commonplace to say the WTO’s accomplishments are long in the past, but this isn’t so. The WTO’s Trade Facilitation Agreement, which entered into force in early 2017, is a cost-cutting, competition-enhancing, anti-corruption agreement of the first order. Once fully implemented, it has the potential to increase global merchandise trade by up to $1 trillion annually, according to the WTO’s World Trade Report 2015.

Another relatively recent success of the WTO is the expansion of product coverage of the Information Technology Agreement (ITA), which has delivered a cornucopia of innovative technology products to the world. All told, approximately $1.3 trillion worth of tech goods – ranging from high-tech healthcare devices to advanced semiconductors and software media – are now being traded duty-free under the 2015 ITA expansion.

A forum for negotiations

That’s not to say the WTO doesn’t need reform. It does. The WTO must become more nimble as a forum for negotiations by making it easier for members to pursue new market-opening trade agreements. Achieving consensus in an organization of 164 member states is obviously challenging, but the absence of consensus cannot be permitted to block negotiations among those seeking to tear down trade barriers or update trade rules.

The U.S. Chamber strongly supports the move to seek new “plurilateral” agreements covering large numbers of WTO members but not necessarily all. Good examples of such trade agreements include the WTO’s Government Procurement Agreement and the aforementioned ITA. One area ripe for negotiation in a plurilateral format is e-commerce, where 76 WTO Member States recently announced plans for negotiations.

Similarly, the U.S. Chamber looks forward to the day when negotiations resume for a Trade in Services Agreement (TiSA), which stalled in late 2016. This negotiation was not properly taking place within the WTO but on its doorstep (with national governments’ ambassadors to the WTO negotiating). But in the long run, this prospective high-standard trade agreement covering services could potentially become a WTO agreement, as has happened in the past.

The U.S.-China trade negotiations of recent months also underscore the need to put teeth into the WTO’s promises on issues ranging from subsidies to the need for state-owned and state-invested enterprises to act on the basis of commercial considerations, as the United States has discussed at length with the governments of Japan and the EU.

An adjudicator of disputes

But the WTO has other roles. WTO dispute settlement plays a central role in the global rules-based trading system. As Bill Reinsch of CSIS explains, the WTO

is the only multilateral institution that has a fully developed dispute resolution system, one that not only adjudicates disputes but can make its decisions stick. It uses a two-part process – panels of experts that initially rule on disputes and an Appellate Body that considers appeals of panel decisions. Because panel decisions (if not appealed) and Appellate Body decisions can only be blocked by consensus, the system has considerable clout.

The United States has been a major beneficiary of WTO dispute settlement, bringing and winning more cases than any other WTO Member. In fact, the United States has won or favorably settled 75 out of the 79 completed WTO cases it had brought (as of 2016). These wins include cases against discriminatory Chinese taxes on U.S. auto exports, EU subsidies in the aircraft sector, and India’s ban on U.S. poultry. The U.S. could not have secured these wins unilaterally.

The U.S. Chamber supports efforts to improve the effectiveness of the WTO dispute settlement system. As the Office of the U.S. Trade Representative has pointed out, U.S. governments have raised serious concerns about “overreach” in Appellate Body rulings for more than 15 years, noting rulings that it argues are not clearly supported in WTO agreements.

In frustration, the Trump administration has upped the ante by blocking appellate body appointments. The United States has come under fire from other WTO members for not offering concrete proposals to resolve its complaints. Now, a crisis looms: In December, the Appellate Body will be reduced to a single member and left completely unable to function.

WTO members are wrestling with these issues. The U.S. Chamber believes WTO members should review and agree on rules dealing with the scope of what can be decided by the Appellate Body with regard to U.S. concerns about judicial overreach. Limits on actions by judges after their term has expired must also be clarified.

However, we cannot throw out the baby with the bathwater. The U.S. Chamber urges all member states to redouble their efforts to overcome the impasse on these issues before the blockage over the appointment of Appellate Body members completely immobilizes WTO dispute settlement.

In the end, governments don’t trade: Businesses do. And in the view of the U.S. business community, a healthy, strong WTO is squarely in the national interest of the United States.

About the Author

About the Author

Senior Vice President for International Policy

Murphy directs the U.S. Chamber’s advocacy relating to international trade and investment policy.